Question 1

For each of the following situations,determine the amount of the allowable deduction.Be sure to show any necessary calculations and provide explanations of how you determined the deductible amount.
 a. Ukarie has an adjusted gross income of $\$ 40,000$. She made the following contributions to qualified charities:
$\begin{array}{lrr}
\text {Property Given }&\text { Basis}&\text {fair Market Value }\\hline
\text { Household Furniture } & \$ 8,000 & \$ 3,000 \
\text { Inventory from her retail store } & 6,000 & 10,000 \
\text { GE stock (purchased in 1978) } & 2,000 & 20,000
\end{array}$
b. Carla purchased her home in 1994 by paying $\$ 60,000$ in cash and borrowing $\$ 140,000$. The home is currently worth $\$ 400,000$ and her mortgage is $\$ 110,000$. Carla is involved in a lawsuit (unrelated to any business interests) during the current year and she borrows $\$ 125,000$ using the equity in her home as collateral for the loan to pay her legal fees and court costs. She pays $\$ 9,800$ of interest on her original mortgage and $\$ 8,000$ of interest on the home equity loan during the current year.
c. Tracy is a resident of Kansas and the sole owner of The Bakery. During 2013 , Tracy makes the following payments:
$\begin{array} { l r } \text { Estimated federal income taxes } & \$ 8,000 \ \text { Estimated state income taxes } & 3,300 \ \text { Self-employment taxes } & 5,600 \ \text { Sales tax from Federal Sales tax table } & 2,100 \ \text { Property tax on personal residence } & 900 \ \text { Tax assessment for sidewalk in front of personal residence } & 3,000 \ 2012 \text { state tax paid in } 2013 \text { with } 2012 \text { state tax return } & 200 \end{array}$

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Question 2

For each of the following situations,determine whether or not the item is deductible,how it would be deducted on the taxpayer's return (if there are alternatives possible,discuss the conditions which would determine the treatment)and any limitations which might be placed on the deduction.
a.Rickie, who is 35, pays $1,800 for dental work during the current year.
b.Jamie incurs $1,400 of employee business expenses during the current year. Her employer reimburses all of the expenses.

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Question 3

Cory and Leslie are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,500 in tuition and fees for Jason,$900 for his books and $3,000 for his room and board.Justine's tuition and fees are $5,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $50,000.What amount can they claim as a tax credit for the higher education expenses she pays?

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Question 4

In each of the following independent cases determine the total number of personal and dependency exemptions Ivan may claim.Assume that Ivan is single,32 years old and any dependency test not mentioned has been met.
a.Ivan provides 80% support of his nephew (age 17), who lives with him. During the year, the nephew has gross income of $4,800 and is a full time student.
b.Ivan and his two brothers each provide 20% of the support of their mother. The mother derives the remainder of her support from Social Security benefits of $9,300.
c.Ivan provides 60% support of his mother, age 69. His mother received dividend income of $3,350 and Social Security benefits of $8,500.

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Question 5

In each of the following independent cases determine Mei-ling's filing status.
a.Mei-ling's husband died in 2012. She maintains a household for her unmarried son during 2013, who did not qualify as her dependent.
b.Mei-ling is unmarried and lives in an apartment. Mei-ling's parents do not live with her. She is not able to claim them as dependents for 2013.

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Question 6

During the year,Arlene donates stock she had purchased in 2005 for $30,000 to a qualified public charitable organization.The fair market value of the stock at the time of the donation is $40,000.Her adjusted gross income for the year is $80,000.If the stock donation is her only charitable contribution,what is Arlene's charitable contribution deduction?
 What should she consider in determining the amount of the deduction?

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Question 7

Reggie and Ramona are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,500 in tuition and fees for Jason,$900 for his books and $3,000 for his room and board.Justine's tuition and fees are $5,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $170,000.What amount can they claim as a tax credit for the higher education expenses she pays?

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Question 8

Explain the non-support test and the principle residence test to be a qualifying child.

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Question 9

Chad pays $2,000 of interest on $20,000 of debt incurred for the purchase of municipal bonds and corporate bonds.Chad receives $800 of interest on the municipal bonds and $800 of interest on the corporate bonds.What is his allowable deduction on the $2,000 of interest?
 Explain your answer and show all calculations.

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Question 10

Canfield is single,70 years old,and has no dependents.Canfield will not have to file a tax return in 2013 if:
I.his gross income does not exceed $11,500.
II.his only income is $4,000 of self-employment income.

Accepted Answer

Since Canfield is single, 70 years old, and has no dependents, he qualifies for the higher standard deduction for taxpayers over 65. This means that his gross income must exceed $11,500 in order for him to be required to file a tax return. Option II is incorrect because even if Canfield's self-employment income is his only income, it still counts towards his gross income and could potentially put him over the $11,500 threshold.

Question 11

Eileen pays $14,000 of interest related to her purchase of investments.During the current year,Eileen's adjusted gross income is $80,000,which includes investment related income of $19,000.Her other investment expenses are $9,000.Determine whether the interest is deductible,how it would be deducted on the taxpayer's return (if there are alternatives possible,discuss the conditions which would determine the treatment)and any limitations that might be placed on the deduction.

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Question 12

Mr.and Mrs.Bachman,both age 65,file a joint return.In 2013 they have wages of $30,000,dividends of $6,200,municipal bond interest of $3,000 and received $10,300 for the sale of stock that cost $4,000 in 1992.They made a $3,000 contribution to their Roth IRA,paid $4,100 in deductible mortgage interest and real estate taxes and made a $2,500 charitable contribution.What is their gross income,adjusted gross income,and taxable income?

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Question 13

Explain the support test and the gross income test to be a qualifying relative.

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Question 14

Describe the rules that apply to individual taxpayers for determining the deductibility of each of the following types of interest.Include in your discussion whether the interest is deducted for or from AGI,and any limitations that apply.
a.Interest associated with trade or business activities
b.Interest associated with investment activities
c.Interest associated with constructing or purchasing a taxpayer's residence
d.Interest associated with personal purchases and activities

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Question 15

Carey and Corrine are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,000 in tuition and fees for Jason,$600 for his books and $3,000 for his room and board.Justine's tuition and fees are $3,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $165,000.What amount can they claim as a tax credit for the higher education expenses she pays?

Accepted Answer

The tax credit for higher education expenses is the American Opportunity Tax Credit. This credit allows for up to $2,500 per eligible student per year for the first four years of college. To be eligible, students must be pursuing a degree or other recognized education credential, enrolled at least half-time for at least one academic period beginning in the tax year, and not have finished the first four years of higher education at the beginning of the tax year.

In this case, both Jason and Justine meet the eligibility requirements. The total tuition and fees for both students is $5,000, and the total book expenses are $1,400. Room and board expenses do not qualify for the credit.

The income limit for claiming the full credit is $160,000 for married couples filing jointly, so Carey and Corrine are eligible to claim the full credit. The credit is calculated as 100% of the first $2,000 of eligible expenses and 25% of the next $2,000, for a maximum credit of $2,500 per eligible student per year.

For Jason, the credit is calculated as 100% of $2,000 + 25% of $600, or $2,100. For Justine, the credit is calculated as 100% of $3,000 + 25% of $800, or $3,200. The total credit they can claim for both students is $5,300, but they can only claim up to $2,500 per eligible student per year. Therefore, they can claim a total credit of $3,450.

The correct answer is C) $3,450.

Question 16

Discuss why the distinction between deductions for adjusted gross income and deductions from adjusted gross income is important for individual taxpayers.

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Question 17

Garcia is single,65 years old,and has no dependents.Garcia will not have to file a tax return in 2013 if:
I.his gross income does not exceed $11,500.
II.his only income is $21,000 of social security benefits.

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Question 18

Byron,54,is a single,self-employed,carpenter.During 2013,he earns gross revenues of $60,000 and incurs $6,000 of business expenses.His itemized deductions for the year are $8,000.Determine Byron's taxable income and his total tax liability.

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Question 19

Alli is 23 years old,a full time student,and a dependent of her parents.She earns $2,000 from her job as a waitress and receives $3,000 of interest on a savings account established by her grandparents.
a.What is Alli's taxable income?
b.What is Alli's tax liability on the taxable income (assume that her parent's taxable income is $200,000)?

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Question 20

Arnold is single and has two children in college.Maureen is a sophomore,and Rick is a senior.Arnold pays $3,000 in tuition and fees for Maureen and $6,000 for her room and board.Rick's tuition and fees are $5,000,and his room and board expenses are $3,600.Arnold's adjusted gross income is $80,000.What amount can he claim as a higher education tax credit?

Accepted Answer

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Quiz 8: Taxation of Individuals

Explain the non-support test and the principle residence test to be a qualifying child.

Canfield is single,70 years old,and has no dependents.Canfield will not have to file a tax return in 2013 if: I.his gross income does not exceed $11,500. II.his only income is $4,000 of self-employment income.

Explain the support test and the gross income test to be a qualifying relative.

Discuss why the distinction between deductions for adjusted gross income and deductions from adjusted gross income is important for individual taxpayers.

Garcia is single,65 years old,and has no dependents.Garcia will not have to file a tax return in 2013 if: I.his gross income does not exceed $11,500. II.his only income is $21,000 of social security benefits.

Byron,54,is a single,self-employed,carpenter.During 2013,he earns gross revenues of $60,000 and incurs $6,000 of business expenses.His itemized deductions for the year are $8,000.Determine Byron's taxable income and his total tax liability.